Leasehold Solutions calls on Government to freeze freeholders’ rights to collect ground rent and service charges, as risk of leasehold forfeiture rises
The Leasehold Solutions Group has called for immediate action from the Government to suspend freeholders’ rights to collect ground rents and service charges in the face of the ongoing COVID-19 pandemic and economic lockdown.
Louie Burns, Managing Director of The Leasehold Group of Companies, said: “The last few months have caused unprecedented disruption to societies and economies across the world and many tens of thousands of people have tragically lost their lives to the Covid-19 virus. The ongoing lockdown has caused significant financial problems for millions of people, causing the UK Government and financial institutions to offer comprehensive aid to support affected businesses, individuals and families.
“The Government’s Coronavirus Job Retention Scheme has covered 80% of the salaries of furloughed workers and the self-employed, while mortgage lenders and credit card providers have moved swiftly to offer payment holidays to their clients. However, one notable group that has failed to offer any support whatsoever are freeholders, who continue to exploit the leasehold system to extort profits from struggling leaseholders.”
Leaseholders have a legal responsibility to pay their leasehold dues to their freeholder, most importantly the ground rent, service charge and major work bills. Early anecdotal evidence suggests that at least 50% of all leaseholders are struggling to pay their current service charge bills and ground rent.
Louie continued: “It comes as no surprise that leaseholders are struggling to meet the terms of their lease, given the current financial climate and the fact that many people are furloughed through no fault on their part. What is shocking though, is the absence of offers of help from fat cat freeholders.
“In fact, we have seen compelling evidence that the opposite is true. Indeed, many freeholders appear to be exploiting the COVID-19 crisis to extort even greater profits from hard-hit leaseholders.
“We have received numerous complaints from leaseholders that their freeholders have used the government scheme to furlough staff, with the effect that no routine maintenance work has been carried out on some leasehold buildings for months, while freeholders refuse to reduce the service charge bill, even by a penny.”
The same applies for ground rent owed. For the last few years the news has been full of stories of onerously high ground rents and the implications of these on the property values.
Louie explained: “The one scenario none of us envisioned was that so many leaseholders would struggle to pay the onerous ground rent demanded by their unfair lease as a result of a global pandemic. Many leaseholders are currently facing profound financial hardship and expecting them to be in a position to continue to pay onerous ground rent is simply unacceptable, given what is happening to the UK economy.
“Out of the many thousands of leasehold properties we deal with each year, we have only heard one example of a freeholder offering a leaseholder the opportunity to spread their ground rent over three separate payments instead of demanding a single lump sum.
“There are two aspects of this which worry us deeply. Firstly, if ground rent is not paid on time, freeholders can charge the leaseholder a ‘reasonable’ admin fee for just sending a payment reminder, although in practice what is considered reasonable is at the freeholder’s discretion. This obviously has the potential to make the situation even worse for leaseholders, while giving the freeholder another opportunity to make undue profit.
“Secondly, and even more importantly, the ultimate sanction for ground rent arrears is forfeiture of the property. The ridiculous law which governs the leasehold system states that if ground rent arrears total more than £350, or if arrears have been owed for more than three years, then the freeholder has the right to apply for forfeiture of the property.
“This is clearly an unjust and disproportional remedy to what amounts to a trifling ground rent debt to a multi-millionaire freeholder. This is a particularly dangerous situation for properties outside of London which have ground rents of more than £250 per year and are considered Assured Shorthold Tenancies (ASTs) for the purpose of ground rent arrears. This means if there are ground rent arrears on these properties and the freeholder applies for forfeiture, then the judges do not have the power to grant the leaseholder relief from the forfeiture application and the freeholder will end up owning the property.
“It appears that freeholders have no intention to take any proactive steps to reduce the hardship and financial burden on leaseholders during the current pandemic. With nearly six million leasehold properties in the UK, it is incumbent upon the Government to correct this shocking ethical failure and introduce legislation to suspend freeholders’ right to collect ground rent and service charges until the lockdown is eased and furloughed workers are able to safely return to work.”